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IAI Actuarial Core Principles · Business Finance · Interpreting company accounting information

Sundaram Ltd reported profit before tax of ₹800,000 after charging depreciation of ₹150,000 and interest expense of ₹60,000, and after crediting a profit on sale of equipment of ₹20,000. During the year inventories rose by ₹70,000, trade receivables fell by ₹30,000 and trade payables rose by ₹40,000. What is the cash generated from operations (before interest and tax paid)?

Cash generated from operations is ₹990,000. Add depreciation and interest to profit before tax, deduct the non-operating profit on sale of equipment, and the working capital movements net to nil, since inventory, receivables and payables changes offset each other.

  1. A₹930,000
  2. B₹950,000
  3. C₹990,000Correct
  4. D₹1,010,000
  5. ₹1,070,000

Explanation

Start with 800,000, add depreciation 150,000 and interest 60,000 to get 1,010,000, then deduct the profit on sale 20,000 to get 990,000. Working capital: -70,000 +30,000 +40,000 = 0. Cash generated is 990,000. The figure 1,010,000 results from forgetting the profit on sale.

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